Two Decision Tools For Mining Investment - And How To Make The Most Of Them

In the mining industry, there are two widely accepted methods of determining the investment worth of a contemplated project. One of these is the payback method and the other is the more recent discounted cash flow (DCF) technique known as the internal rate of return. Both techniques can be useful, but it is important to know the assumptions and characteristics of each procedure and how these may affect an investment decision. The Payback Period-A Shortcut to Yes or No The payback period is simply the time it takes for the cash inflows from an investment to equal that investment. Understandably, projects with short payback periods are preferred to those with longer ones. The payback period may be measured either from the time the initial investment is made or from the time that it begins to yield positive cash flows, but the latter approach is more realistic because it permits more accurate allowance for lost interest on the invested capital.